Pakistans tax policy differs from that of most other
countries. Whereas the predominant source of taxes in most other successful countries is domestic activity, in the case of Pakistan, substantial portions of taxes are derived from imports. According to the World Bank, in Pakistan the time required to prepare, file, and pay (or withhold) is more than twice that for Sri Lanka and India, and nearly four times that of Malaysia.
Difficulties The complexity of Pakistans tax regime Multiple rates for all taxes, including Sales Tax, Customs and Income Tax Most basic rates are high, there are multiple exemptions, which give rise to severe distortion Another problem is that within domestic taxes, over 70% of the tax burden is placed on manufacturing, despite the fact that its share in Pakistans GDP is about 25%. Agriculture, which constitutes about 20% of GDP, contributes less than 1% of tax
Continue Pakistans tax system favors income created through inactive sources, such as rental income. Income earned through working as a salaried person or through business is charged at a much higher rate. Pakistans standard tax rates are rather high. For example, the standard rate of sales tax is 17% compared to 12% in neighboring countries including India and Sri Lanka In the case of corporate tax, Pakistans rate of 35% is higher than most other countries. There is a need for an independent commission to review the existing tax policy. A large number of rich people do not pay any taxes High taxes on international trade slow economic activity, make industry less competitive, and encourage smuggling.
Practical Study ABM Data Systems ABM Data Systems was incorporated as a private limited company in January 1983 in Pakistan Its registered office is situated at Karachi In 1985, ABM established a regional office at Islamabad & Lahore ABM is a leading firm in computer industry of Pakistan with over 150 employees and a customer base of over 5000 sites, which includes many well- reputed organizations. Products Of ABM Difficulties Faced by ABM The difficulties faced by the ABM during calculations is the frequent changes sales tax rates High and variable taxes on imports of spare parts or equipment adversely impact investment and business decisions. During filing the income tax return, ABM is harassed by the department officials for corruption SWOT Analysis Strengths Established name in the field of Information Technology since 1983 Registered with the Pakistan software export board (PSEB) to which helps ABM to avail tax benefits Good reputation among the corporate customers
Weaknesses High cost structures Lack of key distribution channels Lack of after sale services departments Opportunities: Removal of International barrier trade Arrival of new technologies Loosening of tax regulations by the Govt
Threats Emergence of substitute products Shifts in customers tastes away from the firms product Frequent changing of tax rates High rate of taxes on import
Conclusion Tax policies should be bench-marked and aligned with other successful developing countries. There should be a gradual reduction of taxes on imports. Instead of increasing the tax burden on those who are already paying them, efforts should be made to widen the tax net. Frequent tax amnesty and money whitener schemes should be discontinued.